Forget all the huffing and puffing over the uncertain future of offshore oil and gas development: the northern coast of British Columbia stands a better chance of profiting from other large-scale energy projects.
Enbridge and Terasen are in the thick of a contest to build a pipeline link from the oil sands of northern Alberta to a deepwater terminal at Prince Rupert or Kitimat, while two little-known companies are vying for rights to build a liquefied natural gas receiving terminal in the same area.
With a candor that is rare among industry executives, Enbridge President and Chief Executive Officer Pat Daniel, although confident his company has an edge over Terasen, conceded to the Globe and Mail that the battle for the hearts and wallets of shippers and customers is “definitely a competition.”
Terasen, in setting a Jan. 26 deadline for “expressions of interest,” is equally certain it is the front-runner because of the options it is offering — a view that Credit Suisse First Boston analyst Dominique Barker endorses because of the opposition she expects Enbridge will encounter from aboriginal groups along its right of way in British Columbia.
Applications need to be filed this year
The consensus among industry observers is that regulatory applications will need to be filed this year if either company is to capitalize on an expected increase of 2 million barrels per day of oil sands production by 2010.
Greg Stringham, vice president of the Canadian Association of Petroleum Producers, told the Globe and Mail that the contest is “getting to the crunch point.”
The association itself is also getting into the act, with plans to unveil its own report this month on the competing pipeline proposals and the outlook for markets in Asia, California and the U.S. Midwest to refine oil sands output.
Given that more pipeline capacity to eastern North America is also likely to be needed, Stringham suggested that regardless of who is first in the race to the British Columbia coast, the ultimate demand for transportation should benefit both companies.
Enbridge focus is Gateway
Enbridge is pinning its hopes on the Gateway project, a 400,000 bpd system costing C$2.5 billion, with 75-80 percent of the volumes destined for Asia (likely China) and the rest to California.
Enbridge has already secured an interim agreement with Nexen and OPTI Canada, joint partners in the Long Lake oil sands project covering 60,000 bpd over a 50-month term, starting in late 2006.
That also requires expansion of Enbridge’s 330-mile Athabasca pipeline from its current capacity of 250,000 bpd to 350,000 bpd, tapping into various phases of the ConocoPhillips-Total Surmont project, Devon Canada’s Jackfish scheme, Canadian Natural Resources’ Horizon Phase 1, plus Long Lake. Athabasca, which links Fort McMurray with the Enbridge mainline at Hardisty in central Alberta, has an eventual design capacity of 570,000 bpd.
Also on Enbridge’s drawing boards is a 270-mile Waupisoo pipeline from the Fort McMurray area to Edmonton refineries and upgraders — a C$300 million undertaking to offer 600,000 bpd of space by 2008.
Enbridge Vice President Rick Sandahl told a Lehman Brothers conference in the fall that improving delivery options is vital if oil sands production is to grow fivefold to 5 million bpd over the next 25 years.
Terasen offering options
While Enbridge juggles its various elements, Terasen is offering a different set of options in a bid to lure current and prospective customers.
The strategy is “all about options, choice and flexibility,” said Terasen President Rich Ballantyne.
The documents start with plans for an initial “anchor loop” on the Trans Mountain pipeline from Edmonton to British Columbia’s Lower Mainland, spending C$570 million to hike volumes to 300,000 bpd from 225,000 bpd by 2008, offering tolls of C$1.40 per barrel.
From that phase, Terasen is pitching either a Southern Option or Northern Option.
The first would involve a 300-mile, 30-inch diameter pipeline, costing C$900 million and boosting Trans Mountain capacity to 400,000 bpd by 2009.
A second stage costing C480 million would add 195 miles of new 30-inch pipe, more than doubling Trans Mountain to 850,000 bpd.
The Northern Option proposed more than 600 miles of new pipe to offer 500,000 bpd of heavy and light crude space to either Prince Rupert or Kitimat, which Enbridge says would accommodate 250,000-metric ton tankers, compared with the limit of 80,000 metric tons at Lower Mainland ports, as well as a much shorter ocean route to Asia.
Two firms have LNG terminal plans
Meanwhile, against a background of considerable skepticism, two privately held Calgary firms are stepping up their attempts to build LNG receiving terminals.
WestPac Terminals, in partnership with Moneta Capital Partners, has just entered a 30-year lease with the Prince Rupert Port Authority and Galveston LNG has raised C$50 million, about one-tenth of what it estimates is needed to construct a terminal.
WestPac’s lease gives it exclusive rights for an LNG project on 250 acres of industrial land on Ridley Island near Prince Rupert.
It opens the way for WestPac to move forward on other aspects of its C$200 million venture to ship LNG from possible sources in the Middle east, Australia, Indonesia and Russia. Plans call for daily volumes of 300 million cubic feet per day, starting in 2009.
Galveston is aiming to begin operations in 2008 and handle 340 million cubic feet per day, using its Kitimat terminal as a distribution hub for markets in Canada and the United States.
It hopes to follow the C$50 million financing, about one-third from an unidentified investment company in Boston, with another C$100 million in the first half of 2005.
Galveston has also filed for regulatory approval and claims to have the backing of the Town of Kitimat, where residents are more interested in its chances of an economic infusion than mounting environmental opposition.
The company has also made progress in lining up customers, such as utilities and industrial companies, and is confident it can secure supplies.
But Gordon Hart, who sold his C$500 million plan to build an LNG terminal in Nova Scotia to Anadarko last summer, cautions that small LNG promoters like Galveston face difficult obstacles, partly because of the distance from British Columbia to U.S. markets.
He also said the terminal covers 10 percent or less of the cost of LNG. The bulk is needed for liquefaction and shipping. Without assurances of strong markets, long-term supply contracts pose a challenge, while large players in the LNG shipping business will have no interest in glutting the markets, Hart said.
